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Stocks fall on hawkish signals from central banks

Eurozone stock and bond markets fell on Thursday, after the president of the US Federal Reserve reiterated the need for a hawkish approach to inflation and the European Central Bank announced increase interest rates by 0.75 percentage points.

Wall Street’s S&P 500 fell 0.4 percent after the New York opening bell, after closing the previous session up 1.8 percent. The Nasdaq Composite, which is stacked by technology stocks sensitive to changes in interest rates, lost more than 1% before trimming its decline to trade 0.4% lower.

Speaking at the Cato Institute’s annual monetary conference on Thursday, Fed Chairman Jay Powell said the US labor market remained “very, very strong” and raised concerns that inflation would pick up. spurring expectations of even stronger interest rate hikes.

European stocks also fell, with the region’s Stoxx 600 index down 0.4 per cent, Germany’s Dax index down 1.6 per cent and London’s FTSE 100 down 0.5 per cent following the announcement by UK Prime Minister Liz Truss about estimate Package 150 billion pounds to protect Britain from soaring energy prices. Truss has outlined limits on energy prices, including limits on household energy bills for the next two years.

Those moves also came after the ECB announced Interest rate increased by 0.75 percentage points to 0.75%, the highest level since 2011. Rate setters also pledged further increases, underscoring the central bank’s determination to quell inflation ahead of economic growth. .

The ECB said inflation “remains too high and is likely to remain above target for a long time”.

ECB President Christine Lagarde reinforced this message in a press conference, saying that achieving the bank’s “neutral rate” would “load first”. [and] will increase in the next several meetings at a scale and pace that will be determined by the meeting and based on the data we will receive.”

Inflation hit a record 9.1% in the euro area in the year to August.

The 10-year German Bund yield, considered a proxy for eurozone borrowing costs, added 0.07 percentage points to 1.65%. Yields on the two-year bond rose 0.14 percentage points to 1.23 percent. Bond yields increase as their prices fall.

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said: “We should not underestimate the importance of a signal: it is a highly symbolic decision if not wanted. say history. “There has never been such a large change in the ratio: it reflects a change in response [to inflation]. “

U.S. Treasury yields were relatively flat, with two-year Treasury yields adding 0.03 percentage points to 3.48 percent and 10-year yields down 0.02 percentage points. down 3.25 percent.

In currency terms, the euro fell 0.2%, cutting a steeper drop to trade just below the dollar par. The British pound also lost 0.2 percent against the greenback to $1.151.

In Asian stock markets, Japan’s Topix closed up 2.2% and Hong Kong’s Hang Seng index fell 1%. Australia’s S&P/ASX 200 rose 1.8% after the governor of the Reserve Bank of Australia said it would slow the pace of rate hikes after five months of increases.

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